Catholic Diocese filing bankruptcy due to legal cost of abuse cases

Calling it “a painful but necessary decision,” Bishop Stephen E. Blaire of the Diocese of Stockton announced that attorneys for the diocese will be filing Chapter 11 bankruptcy protection on Wednesday.

The decision comes after months of “careful consideration, consultation and prayer,” and looking for other solutions as a “way out” of the problem.

“Chapter 11 protection is the only way we can fulfill our responsibilities to the victims of sexual abuse and our responsibilities to the parishes and communities we serve,” the bishop stated in the announcement released to the media.

He made it clear that the bankruptcy reorganization filing concerns only “the corporation sole known legally as the Roman Catholic Bishop of Stockton.”

Not affected in the bankruptcy filing are the parishes in the diocese – such as St. Anthony of Padua in Manteca, St. Patrick’s Church in Ripon, and Our Lady of Guadalupe Parish in Lathrop – and diocesan schools including St. Anthony of Padua School in Manteca and the Catholic high schools in Modesto (Central Catholic) and Stockton (St. Mary’s High), as well as Catholic cemeteries such as St. John’s Cemetery in Ripon-Escalon, and the Madonna of Peace Retreat Center – because these are separate corporations.

Not impacted as well are the Bishop’s Ministry Appeal and the Church for Tomorrow for the same reason these are separate corporations governed by independent board of directors and are not controlled by the bishop.

However, in light of similar bankruptcy filings by other dioceses in the country where creditors have challenged the status of those filings, pastors in the Diocese of Stockton have been advised to secure “independent legal assistance” so that they will be prepared when faced with those legal challenges.

The bankruptcy filing may take six months and up to two years to complete based on the experiences of the other dioceses that have gone through the process. However, the time element is unpredictable since every bankruptcy case is different.

As to whether or not the diocese can either sell real estate that it owns or liquidate its other holdings to pay sexual-abuse claims, a Q&A that accompanied the bankruptcy filing announcement explains that all these properties will be disclosed in the court filings and that “if the parties cannot reach agreement on a reorganization plan, the court will decide what can and cannot be used to continue operations and meet obligations.”

The announcement then went on to explain that the diocese holds “relatively little property and assets” which include the following five properties: the Pastoral Center, the home of the bishop, the convent of the Eucharistic Franciscan Missionary Sisters, the Newman House/St. John Vianney center on the University of the Pacific campus, and a “a parcel of land in Valley Springs donated for use as a future parish site.”

The diocese itself has sufficient funds to continue normal operations; however, it does not have reserve funds “to settle pending lawsuits of sexual abuse, or to handle any new claims that may be made,” the bishop’s announcement further stated.

The diocese, thus far, has paid more than $14 million in legal settlements and judgments in the past two decades to fulfill its financial obligations to the victims of clerical sexual abuse. With money from “insurers and other payors,” the total amount paid to date is $32 million.

And for those who may be wondering if Vatican can “bail out” the diocese from this financial situation, the answer from the bishop is that this is “not an option” and that dioceses throughout the world, in fact, “support the Vatican, which is an independent entity.” There are “no Vatican funds available to us in this situation,” the bishop stated.

As to the question about how the diocese got into this fiscal situation, the bishop explains that this was due to “those priests in our diocese who perpetrated grave, evil acts of child sexual abuse. We can never forget that these evil acts, not the victims of the abuse, are responsible for the financial difficulties we now face.”

Additionally, the bishop explained that the reorganization filing is not a way for the diocese to hide assets. On the contrary, he stated that the Chapter 11 legal process is “extremely transparent and public.”

The first announcement from the diocese about the possibility of a reorganizational bankruptcy filing was back in June 2013.

“Since we began discussing this possibility more than six months ago, I have been moved by the understanding, patience and support expressed by so many people in the Church and in the wider community. I am deeply grateful,” the bishop stated.

He also added that “all victims of sexual abuse must be in our prayers always.”